AMR Execs Let Go of Retention Program

April 21, 2003 (PLANSPONSOR.com) - Reacting to a
virulent reaction from union negotiators, AMR Corp. chairman
and chief executive Donald J. Carty Friday said that he and
six other senior executives would give up "retention bonuses"
offered to them last year by the company's board of
directors.

On the other hand, AMR said it would keep in place a
supplemental pension trust for its top 45 executives, which
protects a portion of their retirement income in the event
of a bankruptcy filing.

Union leaders had reacted strongly to news of the
special bonuses and pension plan following an AMR filing
with the Securities and Exchange Commission (SEC)
(see
American Airlines Moves to Protect Executive Retirement
Funds
).
The company said it briefed union leaders about all
executive comp programs prior to a vote on a new labor
pact, but union leaders were apparently shocked by the
disclosure, leading some to say that the failure to
disclose the existence of the fund in bargaining by
American constituted a material breach of its obligations
to provide relevant information in the negotiations.

“Obscene Gesture”

On Thursday, union leaders threatened to not sign new
contracts on the pay cuts.
John Ward, president of the Association of Professional
Flight Attendants, charged late Thursday that the measures
were designed “to line the pockets of a few top
executives,” and termed it “…the equivalent of an obscene
gesture from management to employees.”

According to the filing, the world’s largest airline
offered its top six executives “cash retention” bonuses of
twice their base salaries if they stay through January
2005.
American said the AMR retention agreements were created a
year ago in March 2002 when, “…after the events of
September 11, the industry was struggling and our board of
directors had serious concerns about our ability to retain
our senior management in light of the potential loss of
several key executives.”

The airline said the underfunded trust, a supplemental
executive retirement plan (SERP), was established in 1985
and, unlike its other employees’ retirement plans, was
never funded. This past October, during a cycle in which
the company was contributing to employee pension plans,
American made an initial contribution – the first ever,
according to AMR – to the plan, which remains underfunded.
“In simple terms, the SERP is designed to provide a pension
benefit for the portion of compensation above IRS
limitations that executives have already earned,” Carty
said in a
letter to employees
.

“I have apologized to our union leaders for this and for
the concern it has caused our employees,” AMR CEO and
chairman Don Carty said in a
statement
.
“The goal was to give senior officers an incentive to stay
with the company when many were being offered more generous
packages to go elsewhere.”

On Tuesday, the Allied Pilots Association and the
Transport Workers Union said their members had voted to
give annual concessions of $660 million and $620 million
each, while the Association of Professional Flight
Attendants initially rejected by a narrow margin $340
million in concessions.
That result was overturned on Wednesday when the cutoff was
extended and members were allowed to change their votes.
Now the flight attendants’ union says it will revote on the
concession package.

However, after learning of the plan for a new round of
voting by the union, American said it stood by the results
of the earlier vote.
“American Airlines has a valid, ratified agreement with the
APFA,” said a company spokesman, Bruce Hicks, according to
the Associated Press, declining further comment.